03 · Earnings & Sensex

Do Earnings Drive the Index?

Source: NSE / BSE (FY-end closes) · Trendlyne (live EPS & P/E, 30-Oct-2026) · Motilal Oswal (EPS growth phases)

Over the long run, yes — when companies earn more, the market follows; when they don't, it eventually corrects. The last four years tell that story in four chapters.

FY19–22Healthy

10–12%

EPS growth / yr

Sensex rose steadily. P/E stable at 18–22×. Textbook healthy market.

FY22–24Bull Run

24%

EPS CAGR · best in a decade

Sensex 47,000 → 85,000 — earnings led the way.

FY24–25Risky

~1%

EPS growth · very weak

Sensex held near 85,000 on SIP / DII flows — not fundamentals.

FY26Recovery

~10%

EPS growth · recovery

Growth rebounded to ~10% (Motilal Oswal). FY27 now the swing year — earnings must sustain to hold valuations.

Sensex level vs Sensex EPS · r ≈ 0.97Sensex (level)EPS (₹)

Index level (left axis) and EPS (right axis) move almost in lock-step — correlation ≈ 0.97. Sensex EPS rose ₹1,598 → ₹3,765 as the index went 38,673 → 74,459.53 (Trendlyne, 30 Oct 2026).

Nifty 50 level vs Nifty 50 EPS · r ≈ 0.97Nifty 50 (level)EPS (₹)

Nifty 50 EPS climbed ₹480 → ₹1,185 while the index went 11,624 → 23,053.10 — correlation ≈ 0.97. Since FY26-end price is up 4.6% on EPS up 6.5%; P/E 19.48 (Trendlyne, 30 Oct 2026).

What it means

Since FY24, price ran ahead of earnings — a gap propped up by domestic flows (SIP / DII), not profit growth. September's pullback has begun closing it: since March the Nifty is up 4.6% on EPS up 6.5%, and the Sensex up 3.3% on EPS up 5.2% — for the first time in this stretch, earnings are outpacing price. That is the swing-year reset in action: the correction has pulled large-caps to 19.48× P/E, back below their 5Y average, leaving more room than the still-rich small-caps.